Government not to ease rules in Tata-DoCoMo dispute

The government is of the view that there is no case for any relaxation in rules to allow DoCoMo to exit its telecom joint venture with the Tatas at a pre-determined priceTNN | Updated: August 24, 2016, 11:24 IST

NEW DELHI: The government is of the view that there is no case for any relaxation in rules to allow DoCoMo to exit its telecom joint venture with the Tatas at a pre-determined price.

The stance comes amid revelations that the shareholder agreement between the two partners being signed on March 25, 2009, when the Foreign Exchange Management Act (Fema) had barred call or put options being exercised in case of preference shares, which were classified as debt instruments. The pricing guidelines under Fema had stipulated that no foreign investor could exit its investment at a pre-determined price or with assured return.There have been calls for the government to intervene but the Narendra Modi administration is clear that it does not want to wade into the issue as it would mean going against the rules which were revised by the RBI in 2007 — almost two years before the Tatas and DoCoMo signed the agreement. Align | Delete Sources said that intervening in the Tata-DoCoMo case would result in retrospective amendment of rules, which can’t be done for one company. There are several other cases with similar issues. And in any case, the government is averse to any retrospective action.

The shareholder agreement signed between Tata Sons, Tata Tele and DoCoMo had a clause which allowed the Japanese partner to sell its shares at fair value or half the subscription price of Rs 116 a share (whichever is higher) in case performance parameters were not met. In March 2014, DoCoMo gave a sell notice after the fair value of shares had dropped to Rs 23 each, while 50% of the subscription price was Rs 58 per share. The rules prevailing then allowed a buyback at the prevailing prices or the fair value (Rs 23) without giving any assured return.

With RBI disallowing Tatas to buy the partner’s stake for over Rs 7,000 crore, the two companies were locked in arbitration, a recent ruling has asked the Indian conglomerate to pay nearly $1.2 billion (close to Rs 8,000 crore) to the Japanese firm.